notes to the accounts – Page 2 – Accounting Crash Course

Sample Disclosure – Accounting Policy On Other Investments (26 August 2009)

Other investments

Non-current investments other than investments in subsidiaries and associates are stated at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Where there has been a decline other than temporary in the value of an investment, such a decline is recognised as an expense in the period in which the decline is identified. All current investments are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investments. Upon disposal of such investment, the difference between net disposal proceeds and its carrying amount is recognised in profit or loss.

Sample Disclosure – Accounting Policy On Investment In Associates (26 August 2009)

Associates

An associate is an entity over which the Group and the Company have significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

In the Company’s separate financial statements, an investment in associate is stated at cost less impairment losses, if any. An investment in associate is accounted for in the consolidated financial statements using the equity method of accounting. The investment in associate in the consolidated balance sheet is initially recognised at cost and adjusted thereafter for the post acquisition change in the Group’s share of net assets of the investment.

The interest in the associate is the carrying amount of the investment in the associate under the equity method together with any long-term interest that, in substance, form part of the Group’s net interest in the associate. The Group’s share of the profit or loss of the associate during the financial year is included in the consolidated financial statements, after adjustment to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

Distributions received from the associate reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the Group’s proportionate interest in the associate arising from changes in the associate’s equity that have not been recognised in the associate’s profit or loss. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The Group’s share of those changes is recognised directly in equity of the Group.

Unrealised gains and losses on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the associate.

When the Group’s share of losses in the associate equals to or exceeds its interest in the associate, the carrying amount of that interest is reduced to nil and the Group does not recognise further losses unless it has incurred legal or constructive obligations or made payments on its behalf. The most recent available financial statements of the associate are used by the Group in applying the equity method. When the reporting dates of the financial statements are not coterminous, the share of results is arrived at using the latest audited financial statements for which difference in reporting dates is no more than three (3) months. Adjustments are made for the effects of any significant transactions or events that occur between the intervening periods.

Upon disposal of an investment in associate, the difference between the net disposal proceeds and its carrying amount is included in income statements.

Sample Disclosure – Note On Dividends (19 August 2009)

DIVIDENDS
	Dividend per share	In respect of Year		Recognised in Year
		2008	2007	2009	2008
	RM	RM	RM	RM	RM
2007 Final dividend of 45% less 25% taxation, on 100,000,000 ordinary shares, declared on 1 March 2008 and paid on 1 April 2008	0.3375	–	33,750,000	–	33,750,000

2008 interim dividend of 10% less 25% taxation, on 100,000,000 ordinary shares, declared on 1 June 2008 and paid on 10 June 2008	0.075	7,500,000	–	–	7,500,000

2008 final dividend of 30% less 25% taxation, on 100,000,000 ordinary shares, amounting to a dividend payable of RM22,500,000	0.225	22,500,000	–	22,500,000	–
		30,000,000	33,750,000	22,500,000	41,250,000

At the forthcoming Annual General Meeting, a final dividend in respect of the financial year ended 31 December 2008, of 30% less 25% taxation on 100,000,000 ordinary shares, amounting to a dividend payable of RM22,500,000 (22.50 cents net per ordinary share) will be proposed for members’ approval. The financial statements for the current financial year do not reflect this proposed dividend. Such dividend, if approved by the members of the Company, will be accounted for in equity as an appropriation of accumulated profits in the financial year ending 31 December 2009.

Sample Disclosure – Note On Investment In Associates (31 May 2009)

INVESTMENT IN ASSOCIATES

Investment in associates consists of:

	Group		Company
	2009	2008	2009	2008
	RM	RM	RM	RM
At Cost:
Quoted shares	400,000	400,000	400,000	400,000
Unquoted shares	500	500	500	500
	400,500	400,500	400,000	400,000
Share of post -acquisition results, net of dividend received	230,128	245,750	–	–
Impairment loss	(100,500)	(100,500)	(100,500)	(100,500)
	530,128	545,750	299,500	299,500
At Market Value
Quoted shares	501,850	487,154	501,850	487,154

The following information relates to the associates which are all incorporated in Malaysia.

Name of Companies	Effective Equity Interest		Principal Activities
Name of Companies	2009	2008	Principal Activities

Held by the Company
ABC Berhad	42.00%	42.00%	Investment holding and property development
Held through indirect subsidiary, XYZ Sdn Bhd
EFG Berhad	40.00%	40.00%	Provision of property management services
HIJ Sdn Bhd	40.00%	40.00%	Dormant

As at day/month/year, investment in a quoted associate of the Company with carrying value amounting to RMXXX,XXX (2008: RMXXX,XXX) has been charged to a licensed bank for banking facilities stated in Note XX.

The directors are of the opinion that the allowance for impairment loss as of year end is adequate as the carrying value of the investment approximates the net assets of the associates.

The summarised financial information in respect of the Group’s associates are as follows:

	Group
Assets and liabilities	2009	2008
Current assets	1,820,137	1,756,842
Non-current assets	1,589,630	1,642,693
Total assets	3,411,776	3,401,543
Current liabilities	-2,568,461	-2,948,763
Non-current liabilities	-251,836	–164,687
Total liabilities	-2,820,297	-3,113,450
Net Assets	591,479	288,093
The Group’s share of net assets	236,592	115,237
Results
Revenue	354,262	249,867
Profit for the financial year	65,317	4,512

The results of ABC Berhad and its subsidiaries (“ABC Group”) have been equity accounted for and included in the financial statements of the Group based on the latest audited financial statements.

Auditors’ report of the ABC Group for the financial year ended day/month/year

In the auditors’ report, the auditors have included an emphasis of matter in respect of the use of going-concern as the basis for the preparation of the financial statements of the ABC Group.

The auditors reported that the financial statements of ABC Group and have a net current liabilities of RMXXX million and RMXXX million respectively as at day/month/year. However, the financial statements of the ABC Group and of ABC Berhad have been prepared on a going concern basis. The application of the going concern basis is based on the assumption that ABC Group and ABC Berhad will be able to complete the Financial Regularisation Plan within the anticipated timeframe and that the ABC Group will be able to achieve sustainable and viable operations in the foreseeable future and consequently, the realisation of the assets and settlement of liabilities in the normal course of business. In this connection, the directors of ABC Berhad are confident that the Financial Regularisation Plan would be completed successfully within the anticipated timeframe.

Accordingly, the financial statements do not include any adjustments relating to the recoverability and classification of assets and the classification of liabilities that might be necessary should ABC Group be unable to continue as a going concern.

Sample Disclosure – Accounting Policy On Associates (30 May 2009)

Associates

Associates are those corporations, partnerships or other business entities in which the Group exercises significant influence, but which it does not control. Significant influence is the power of the Group to participate in the financial and operating policy decisions of its associates but not the power to exercise control over those policies. Such significant influence generally is reflected by a shareholding of between 20% and 50% of the voting rights in these entities, and that is neither a subsidiary nor an interest in a joint venture.

Investments in associates are initially recognised at cost and accounted for in the consolidated financial statements using the equity method of accounting. The Group’s investment in associates includes goodwill on acquisition, net of any accumulated impairment losses. The policy for the recognition and measurement of impairment losses in associates is in accordance with the policy stated in Note X.

The audited financial statements of the associates are used by the Group in applying the equity method. In the event that audited financial statements are not available, unaudited financial statements prepared by the mangement of the associates are used. Uniform accounting policies are adopted for similar transactions and events in similar circumstances.

Under the equity method, the investment in associate is included in the consolidated balance sheet at cost, adjusted for the Group’s share of post acquisition changes in the net assets of the associate. The Group’s share of the net profit or loss of the associates is recognised in the consolidated income statement, whereas the Group’s share of changes in items recognised directly in the equity of the associate such as reserves and foreign exchage differences, the Group recognises its share of such changes as a component of its equity.

In applying the equity method, unrealised gains and losses on transactions between the Group and the associate are eliminated to the extent of Group’s interest in the associates, and the unrealised losses are eliminated to the extent of the costs that can be recovered.

When the Group’s share of losses in an associate equals or exceeds its interest in the associates, including any other unsecured receivables, the Group’s interest in this associate is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has legal or constructive obligations over such losses.

Associates are equity accounted for in the concolidated financial statements from the date the Group obtain significant influence until the date the Group cease to have significant influence over the associates.

Goodwill arises on acquisition of an associate is included in the carrying amount of the investment in the associate and is not amortised. Any excess of the Group’s share of the net fair value of the associate’s identifiable assets, liabilities and contingent liabilities over the cost of the investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group’s share of the associate’s profit or loss in the period in which the investment is acquired. On disposal of such investment, the difference between net disposal proceeds and the carrying amount of the investment in an associate is reflected as a profit or loss on disposal in the consolidated income statement.

Sample Disclosure – Auditors’ Report With Disclaimer Opinion (19 may 2009)

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF

ABC BERHAD

(Incorporated in Malaysia)

Company No: XXXXX-X

Report on the Financial Statements

We have audited the financial statements of ABC Berhad, which comprise the balance sheets of the Group and of the Company as at day/moth/year, the income statements, statements of changes in equity and cash flow statements of the Group and of the Company for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages XX to XX.

Directors’ Responsibilities for the Financial Statements

The directors of the Company are responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards and the Companies Act, 1965 in Malaysia. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibilities

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia, except that the scope of our work has been limited as explained below. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. However, the evidence available to us was limited as discussed below. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

Basis of Disclaimer of Opinion

(a) Fundamental uncertainty relating to the going concern basis

We draw attention to Note X to the financial statements, which disclose that the financial statements of the Group and of the Company have been prepared on a going concern basis, notwithstanding that the Group and the Company had incurred a net loss of RMXX,XXX,XXX and RMXX,XXX,XXX respectively for the financial year ended day/month/year. At this date, the Group and the Company had capital deficiency of RMXXX,XXX,XXX and RMXX,XXX,XXX respectively. The current liabilities of the Group and of the Company exceeded the current assets by RMXXX,XXX,XXX and RMXX,XXX,XXX respectively. The Group has also defaulted in payment on its borrowings whereby certain financial institutions have initiated litigation actions against the Group and the Company as disclosed in Note X to the financial statements. The directors are in the midst of arranging to regularise the financial position of the Group and of the Company including discussion with financial institutions for resolving the matters relating to default of borrowings repayment out of court and considering various options in terms of “financial rescue plan” available and/or offered by interested parties before announcing the selected arrangement. However, as of the date of this report, we are unable to evaluate the outcome of such plan/arrangement and its impact on the business operations as well as the ability of the Group and the Company to continue as a going concern.

(b) Limitation of Audit Scope – Audit confirmations

The confirmations from certain receivables, payables, financial institutions and solicitors to ensure the existence and completeness of the balances and the status of on-going litigations at financial year end are still outstanding as at the date of our report and therefore we were unable to complete these audit procedures. There were no other alternative procedures whereby sufficient evidence and explanation to ensure the existence and completeness of these balances. Any adjustments found to be necessary to the amounts would affect the related disclosures thereof in the financial statements.

Disclaimer of Opinion

Because of the significance of the matters discussed in the preceding paragraphs, we do not express an opinion whether the financial statements of the Group and of the Company have been prepared in accordance to the Companies Act, 1965 and Financial Reporting Standards in Malaysia so as to give a true and fair view of:-

(i) the financial position of the Group and of the Company as at day/month/year and of its financial performance and cash flows for the financial year then ended; and

(ii) the matters required by Section 169 of the Companies Act, 1965 to be dealt with in the financial statements of the Group and of the Company.

Report on Other Legal and Regulatory Requirements

In accordance with the requirements of the Companies Act, 1965 in Malaysia, we also report the following:-

a) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiary companies of which we have acted as auditors have been properly kept in accordance with the provisions of the Act.

b) We have considered the financial statements and the auditors’ reports of all the subsidiary companies of which we have not acted as auditors, as disclosed in Note XX to the financial statements.

c) We are satisfied ourselves that the financial statements of the subsidiary companies that have been consolidated with the Company’s financial statements are in form and content appropriate and proper for the purposes of the preparation of the consolidated financial statements and we have received satisfactory information and explanations required by us for those purposes.

d) Except for the auditors’ reports on the financial statements of XXX Sdn. Bhd. and XXX Sdn. Bhd. which were not subject to any qualification and did not include any comment made under Section 174 (3) of the Act, the auditors’ reports on the financial statements of other subsidiary companies were qualified as disclosed in Note XX to the financial statements.

Other Matters

This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act, 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

[Name of firm] [Name of partner]

AF: 0001 No. 1001/01/2010

Chartered Accountants Chartered Accountant

Wonderland, Malaysia

19 May 2009